How Much House Can You Afford?
On February 25, 2026 By newsroom Topic: Buying A House
Summing it up
- Rule of Thumb:
- Your mortgage payment should not exceed 28% of your gross monthly income.
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Total debt obligations (mortgage + other debts) should be below 36% of your gross monthly income.
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Consider All Costs:
- Property taxes, homeowners insurance, and maintenance costs impact affordability.
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Closing costs and other fees should also factor into your budget.
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Mortgage Affordability Formula:
- For example, if your monthly gross income is $7,000,
- Mortgage payment limit = $1,960 (28%)
- Total debt payment limit = $2,520 (36%)
Factors Influencing Your Mortgage Limit
- Credit Score
- A higher score qualifies you for better rates.
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Minimum scores range from 580 - 620 for most loans.
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Debt-to-Income (DTI) Ratio
- Ideal DTI: 36% or less.
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The lower your DTI, the more you can allocate to a mortgage.
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Down Payment
- Higher down payments reduce monthly payments and may eliminate PMI if over 20%.
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Typical FHA loans require 3.5% down, while VA loans often have no down payment.
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Interest Rates and Points
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Paying points can lower your interest rate, reducing monthly payments.
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Additional Costs
- Include homeowners insurance, PMI, HOA dues, and upkeep expenses.
Should You Rent or Buy?
- Renting is often more affordable in the short term but offers no equity.
- Buying builds long-term financial stability and equity but involves upfront costs and ongoing maintenance.
Example Scenarios
- Annual Income: $100,000
- Mortgage affordability = $300,000 or less.
- Monthly Gross Income: $7,000
- Max monthly mortgage payment = $1,960.
Pro Tips for Determining Affordability
- Use tools like mortgage calculators to estimate monthly payments.
- Prioritize saving for a larger down payment to reduce monthly costs.
- Evaluate your lifestyle and financial goals - don't overextend your budget.
Remember: Owning a home should align with your financial health and personal goals, not stretch your resources thin!
